U.S. Firms Drawn Across Atlantic for Bonds as Rates Diverge

2016 may be another year of the reverse yankee

Euro Banknotes As Currency Declines To Nine-Year Low
Photographer: Simon Dawson/Bloomberg

Corporate bond sales in Europe are set for another busy year in 2016, with more U.S. firms set to cross the Atlantic in large numbers lured by supportive credit conditions.

U.S. issuers including Apple , Coca-Cola and McDonald's were the biggest sellers of investment-grade corporate bonds this year, data compiled by Bloomberg show, pricing nearly double the amount from France, the next biggest source of issuers, the data show.

Issuance by U.S. companies in euros -- known as 'reverse yankees' -- is likely to remain high as monetary policy in the U.S. and Europe diverges, leaving the euro as the "funding currency of choice," JPMorgan analyst Matthew Bailey wrote in Dec. 1 client note.

Increased bond sales from U.S. corporates is also a product of the large amounts they are borrowing, ING analyst Jeroen van den Broek wrote in a Nov. 17 note. Euro bonds have comprised about 10 percent of U.S. companies' total bond sales this year, a proportion in line with the average of last 10 years, the analyst wrote.

The European market has also grown more amenable to foreign companies' borrowing requirements, according to Van den Broek. The European credit market has become a "mature professional market place that allows bulge-bracket corporates to tap the market in size across different maturities at once.”

U.S. companies are set to use the European bond market to help fund mergers and acquisitions, Wells Fargo strategist George Bory wrote Dec. 7. Large loans that may be replaced by bonds include AB InBev's $75 billion financing backing its acquisition of SABMiller, which included $30 billion of short-term loans earmarked for refinancing by cash or bonds.

Bond issuance is expected to rise even though many bonds sold this year have performed poorly for investors. 65 percent of notes publicly offered in Europe are now quoted at higher spreads than when they priced, data compiled by Bloomberg show. Deals sold in the first part of the year, when spreads were at their tightest, fared worse than more recently-sold securities, according to the data.

High-yield bonds are among both the best- and worst-performing corporate bonds of the year, with Picard’s €428 million 7.75 percent notes due 2019 among those that have tightened the most. Abengoa’s €375 million 7 percent securities due 2020, which sold in April, are the worst-performing, dropping to lower than 15 cents on the euro after the company filed for creditor protection last month.

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